Whether a residential landlord
or commercial landlord,
you will need to keep details of rental income throughout the year, as
well as evidence of expenses. These are vital when you come to prepare
your annual Self Assessment tax return.

Aside from your legal obligation to keep certain documents, an efficient
record keeping routine will save you money in the long term. A
remarkable number of landlords end up paying significantly more tax than
is necessary, either because they are unaware of the range of expenses
for which they can claim, or because they have not retained evidence of
their costs. You should therefore try to get into a routine of filing
receipts and invoices as you receive or raise them.

Self Assessment

The vast majority of landlords will be required to complete an annual
Self Assessment (also called a tax return). During this process you
will provide details of your income during the previous financial year,
as well as your expenditure. This is the means by which self-employed
people have their tax bill calculated.

There are a number of key documents that you need to retain in order to
fill in your tax return. These include:

Proof of rental income

Details of capital costs, for example furniture, including receipts

Details of ‘allowable expenses’.

Recording your income

Landlords sometimes find it difficult to keep records of rental income
as, unlike other businesses that rely on monthly payments, you will not
raise an invoice before each instalment of the rent. In lieu of this,
you should make sure that you keep your bank statements, and that you
are able to delineate your rental income from all other transactions.

If you rent through a lettings agent, they should send you a monthly
statement with the rent paid and details of their fees.

You should also keep copies of all of your tenancy agreements. These
will provide details of the amount the tenant has agreed to pay, along
with the dates between which your properties have been rented out.

What is capital expenditure

Capital expenditure is money spent on single-purchase items that allow
you to provide a service or produce goods. In the case of landlords,
capital expenditure tends to cover the purchase of furniture and
fittings for your properties.

You should keep accurate and detailed records of any capital expenditure
made over the course of the year. Make sure that you keep these separate
from your own personal expenditure, in order to ensure that you do not
over-claim on your tax return.

You should also remember that it is often possible to offset against tax
the depreciation in value suffered by these assets. You can use this
‘wear and tear’ tool to reduce your tax bill over a number of years; an
accountant will be able to advise as to whether or not this is possible
in your case.

What are allowable expenses?

Allowable expenses cover the regular costs associated with the
management and upkeep of your properties. The most common allowable
expenses for landlords include:

HM Revenue and Customs recognise that landlords, like other business
owners, incur certain costs while providing a service to tenants. These
costs can be used to reduce your taxable income, and are a vital way of
keeping your tax bill down.

However, it is important that you are able to differentiate between
personal expenses and those incurred as a result of your business.
Sometimes this can be difficult. For example, if you work from home and
use an internet connection or both business and personal use, how do you
calculate the amount you can claim?

In these cases, you must work out the proportion of the expense that can
be attributed to business use. In some cases, however, this can be difficult. In the case of business costs for vehicles, working from home, or living in business premises. You can read more about the flat rates on .GOV.

How long to keep records

You are legally obliged to keep all relevant records for at least five
years from the 31 January submission deadline for that tax year.

Record keeping is one of the less exciting parts of a landlord’s job.
However, it is an important legal obligation – and one that can
ultimately save you money. Try to get into the routine of filing
documents as they arrive, and you can help to keep your tax bill down
and your self assessment painless.

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